Interest Deductibility on Residential Rentals
Interest deductibility on residential rentals was restricted in stages effective from the 2021 income year. For the year ended 31 March 2024, no interest deduction is permitted for post-2021 lending to acquire residential property, with a limit of 50% deductibility on pre-2021 lending (with some limited exceptions).
Full interest deductibility will now be restored but in two stages. For the year ended 31 March 2025, a deduction of 80% of interest paid in relation to residential rentals will be available. This will apply to both pre- and post-27 March 2021 lending. Any property that would have had 100% deductibility under the previous rules (e.g. new builds) will continue to have this for the year ended 31 March 2025 under the new rules.
A full interest deduction will be available for the year ended 31 March 2026,
Anyone whose interest deduction was deferred under the previous interest limitation rules (for example, where a property would be subject to the bright line test and an interest deduction would be available on sale) can still take advantage of these rules.